Sept. 14 (Bloomberg) -- Industrial production in the U.S.
unexpectedly fell in August by the most since March 2009,
highlighting risks to the economic outlook a day after the
Federal Reserve boosted record stimulus.

The 1.2 percent decrease at factories, mines and utilities
followed a revised 0.5 percent gain in the prior month, figures
from the Fed showed today. The median estimate in a Bloomberg
survey of 81 economists called for no change. Another report
showed purchases cooled at retailers excluding auto dealers and
gasoline service stations.

A global economic slowdown is restraining demand for U.S.
exports, making it harder for companies like Texas Instruments
Inc. and Dow Chemical Co. to expand sales. Manufacturers are
also challenged by the prospect of budget cuts and tax increases
set to take effect at the end of the year and consumer spending
that’s hampered by 8 percent unemployment.

“Manufacturing is losing momentum,” said Joshua Shapiro,
chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.
“Exports will weaken further, and the consumer is in a very
tough position. The economy isn’t going anywhere.”

Demand for riskier assets after yesterday’s announcement
that the Fed would buy mortgage securities sparked a global
rally in stocks and commodities.

The Standard & Poor’s 500 Index climbed 0.4 percent to
1,465.77 at the close in New York, the highest level since
December 2007. The S&P GSCI gauge of 24 commodities rose for a
seventh day, climbing to its highest in five months. Spot gold
touched $1,778, its highest price since Feb. 29, oil briefly
topped $100 a barrel and Treasuries declined.

Consumer Confidence

Another report today showed confidence among U.S. consumers
unexpectedly improved in September, boosted by gains in stock
prices and home values.

The Thomson Reuters/University of Michigan preliminary
index of consumer sentiment climbed to 79.2 from 74.3 the prior
month. The gauge was projected to fall to 74, according to the
median forecast of 71 economists surveyed by Bloomberg News.

Retail sales minus autos and gasoline increased 0.1 percent
in August, less than forecast, after a 0.8 percent gain in July,
the Commerce Department said today in Washington. Overall
purchases increased 0.8 percent after a 0.6 percent advance.

Higher food and fuel costs along with smaller gains in
payrolls and wages may take a toll on household finances, posing
a challenge for merchants such as Kohl’s Corp. and Macy’s Inc.

Big Purchases

Susan Smith of Memphis, Tennessee, said she and her husband
haven’t made any big purchases recently and have no plans to do
so in the immediate future.

“We’ve been cutting back tremendously,” said Smith, who
was attending a conference in Washington. “I think the economy
is still in trouble. We’ve not done a lot of spending, not done
a lot of traveling like we’ve done before.”

Gasoline prices are taking a toll. Regular-grade gas prices
have climbed to an average of $3.87 per gallon, up 54 cents
since the start of July, according to AAA, the nation’s largest
motoring organization.

The increase accounted for 80 percent of a 0.6 percent in
consumer prices in August, the Labor Department said today. The
gain in the measure of the cost of living was the biggest in
more than three years.

“Gas prices make a big difference,” said Terence
Thompson, a landscaper from Mechanicsville, Maryland. “The cost
of food has gone up, clothes -- I have adjusted a lot. I have to
watch what I buy.”

Household Demand

Household purchases, which account for about 70 percent of
the economy, rose at a 1.7 percent annual rate from April
through June, the weakest since the third quarter of 2011,
Commerce Department data show.

The figures, along with a slower global economy, help
explain why manufacturers are pulling back.

Manufacturing, which accounts for about 12 percent of the
economy, fell 0.7 percent in August, the biggest decrease in
five months, the Fed’s data showed.

“Manufacturing is clearly decelerating,” said Guy Berger,
a U.S. economist at RBS Securities Inc. in Stamford,
Connecticut, who predicted a decline. “There is weakness all
around in today’s numbers. Manufacturing’s contribution to the
economy is coming down.”

Dow Chemical, the biggest U.S. chemical maker, this month
announced a new global business structure as it seeks to reduce
costs and respond to softening global demand.

‘Challenging Environment’

“Industries and sectors worldwide are really in the midst
of what we consider an incredible challenging environment,”
Andrew Liveris, chief executive officer of the Midland,
Michigan-based company, told investors at a Sept. 11 conference.

The same day, Dallas-based Texas Instruments, the largest
maker of analog chips, said demand in all segments except for
wireless is tracking below expectations this quarter.

“Almost all of them are running a little weaker than what
we had expected back in July,” Texas Instruments Vice President
Ron Slaymaker said in a Sept. 11 teleconference with analysts.
“We’re just operating in a weaker demand environment.”

Utility output plunged 3.6 percent, after a 1.3 percent
gain the prior month. The figures may reflect some easing after
the surge in July, which was the hottest month in the lower 48
states in records going back to 1895, according to the National
Oceanic and Atmospheric Administration.

Mining output, which includes oil drilling, decreased 1.8
percent.

Auto Production

The production of motor vehicles and parts fell 4 percent,
the most in more than a year, after increasing 2.7 percent the
month earlier, today’s report showed. Excluding autos and parts,
manufacturing dropped 0.4 percent after a 0.2 percent gain in
July.

The latest results on car purchases have been more
encouraging. Autos, a source of manufacturing strength, sold at
a 14.46 million annual rate last month, the fastest since the
surge in August 2009 tied to the government’s “cash-for-clunkers” program. They were up from a 14.05 million pace in
July, according to data from Ward’s Automotive Group.

The Fed yesterday announced its third round of large-scale
asset purchases since 2008. Chairman Ben S. Bernanke for the
first time pledged that the Federal Reserve will buy bonds until
the economy gets closer to his goals, cementing his place as the
Fed’s most innovative chairman and signaling the battle against
unemployment eclipses any concerns about inflation for now.

Job Market

A stagnant labor market may restrain household spending.
Employers added 96,000 workers in August after a 141,000
increase in July. Unemployment, which fell to 8.1 percent as
more Americans left the labor force, has exceeded 8 percent
since February 2009, the longest stretch in monthly records
going back to 1948.

“We’re looking for ongoing, sustained improvement in the
labor market,” Fed Chairman Ben S. Bernanke said at a press
conference yesterday after the central bank said it would buy
$40 billion a month in mortgage-backed securities.